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Has Dole Food Become the Perfect Stock?

The food company has gone through some major restructuring. Is it working?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock and then decide whether Dole Food (UNKNOWN:DOLE.DL) fits the bill.

The quest for perfectionStocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.

Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.

Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.

Moneymaking opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.

Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.

Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Dole Food.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

5-year annual revenue growth > 15%

(9%)

Fail

1-year revenue growth > 12%

(11.1%)

Fail

Margins

Gross margin > 35%

8.7%

Fail

Net margin > 15%

(3.4%)

Fail

Balance sheet

Debt to equity < 50%

237.8%

Fail

Current ratio > 1.3

1.86

Pass

Opportunities

Return on equity > 15%

0.2%

Fail

Valuation

Normalized P/E < 20

31.03

Fail

Dividends

Current yield > 2%

0%

Fail

5-year dividend growth > 10%

0%

Fail

Total score

1 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Dole Food last year, the company has seen its score cut in half. A big drop in net income has sent the company's normalized earnings multiple climbing much higher despite the stock's breakeven performance over the past year.

Dole is a major player in the fruit industry, with a combination of packaged foods and fresh-fruit offerings. Over the years, that industry has been a tough one to reap profits from, as razor-thin margins even in the best of times define this commoditized business. Rival Fresh Del Monte (NYSE:FDP) has managed to stay profitable, but both Dole and banana-giant Chiquita Brands (UNKNOWN:CQB.DL) have suffered bouts of losing quarters.

But a major transformation for Dole will change the way it does business. With its sale of its packaged foods and Asian fresh-fruit business for $1.7 billion to Japanese conglomerate Itochu, Dole will get much-needed cash to pay down its debt. With what amounts to a new lease on life, Dole will have a much smaller business, but it will be easier to manage and navigate in a tough industry environment.

Still, in its most recent quarter, Dole didn't impress investors. A large plunge in revenue combined with losses from continuing operations show that even Dole's surviving core business isn't going as well as it needs to for the company to be successful.

For Dole to improve, it needs to make the most of its restructuring opportunity. With so many changes coming for the company, Dole will only get closer to perfection if it avoids the mistakes it has made in the past.

Keep searchingNo stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Click here to add Dole Food to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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